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Opinion Contributor

A fiscal deal or fiscal crisis?

Let’s dispense the notion that we can 'grow our way out' of our debt problem, the author writes. | AP Photo

By PETER G. PETERSON | 4/1/13 8:55 AM EDT

Now that Congress and the president have agreed to fund the government for the rest of this fiscal year — removing the threat of a government shutdown — Washington should use this opportunity to get past the crisis-driven fiscal policy of recent years and put the focus squarely where it belongs: on the long term.

I’m often called a “deficit scold,” so it may surprise some people to know that my primary concern is not this year’s budget deficit or next year’s. I believe the principal threat to America’s future is our unsustainable long-term debt and deficits, the damaging effect they would have on our economic growth and competitiveness, and the unconscionable burden they would place on our children and grandchildren.

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I have spent much of my life putting private capital to work, and I know that Washington’s tax and spending decisions —and indecisions—can have a major impact on private sector investment. More confidence in America’s fiscal future is essential if we want to spur businesses to put their trillions in idled capital to work.

Unfortunately, all of the recent fire-drill fiscal agreements — the Budget Control Act of 2011, the fiscal cliff deal, sequestration — have done very little about our long-term structural debts. Shorter-term discretionary expenditures such as R&D, education, and infrastructure have taken the hardest hits, despite the fact that we need more, not less, of these investments in today’s far more competitive global economy.

Even after these recent budget deals, over the next 30 years, public debt is projected to race past an unprecedented 200 percent of GDP. This dangerous trajectory of debt poses two threats to our economy.

The first is a financial market crisis, similar to what’s unfolded in Europe. Rising debt, combined with repeated political crises and gridlock, could cause markets to decide that we aren’t going to get our fiscal house in order. No one can predict when such a crisis might hit, but if it does, it’s likely to be sudden, significant, and sharp. Today’s low interest rates — which are providing false comfort to some — would quickly rise and severely damage an already fragile economy.

The other threat is far easier to predict: a slow-growth crisis, in an economy that is starved of badly needed investments. Over the next quarter-century, even if interest rates rise only to historically average levels, interest costs on public debt are projected to soar to about four times the total federal investment in R&D, education, and non-defense infrastructure combined. Those of us who believe more investment is needed in this technological and competitive global economy also have a responsibility to advocate for policies that ensure we have the resources to pay for it.

It’s become a cliché to say that “everything must be on the table” in fiscal negotiations, when it is clear that everything has not been on the table. At various times, defense, taxes, and entitlements have all been taken off the table.

As to defense, there are significant opportunities for smart, strategic savings geared to the threats of a new era — not the crude, across-the-board cuts of the sequester.